For Small Health Systems, Big Decisions Can Mean Life or Death

Philip Betbeze, February 17, 2014

Seeking a strategic path for a healthcare organization amid historic levels of disruption can be exhilarating, but small systems and standalone hospitals are essentially betting their institutional lives on the changes they're making.

This article appears in the January/February 2014 issue of HealthLeaders magazine.

Mike Phelps is not shy about adapting to a rapidly changing healthcare business model under which healthcare organizations' success—or lack thereof—is less a function of their ability to attract referrals and patients and more a function of their ability to deliver better outcomes and, critically, better value.

Despite his willingness to change, he knows that as the chief operating officer for Ridgeview Medical Center and Ridgeview Clinics in Waconia, Minn.—a relatively small organization with an 85-staffed-bed hospital, several clinics, and about 1,700 employees—the strategic shifting required to adapt to a new measurement regime in healthcare is inherently more risky for him and for leaders of other small or standalone systems than for those with bigger war chests. By changing too fast or too much, are organizations like his essentially making life-or-death decisions?

They are, he says, but what's the alternative?

"Sticking to your knitting won't suffice in the new world," he says. "We can't stand still in a highly competitive market, so we need to carve a niche for a community health system."

Other community health systems are in the same pickle. Big systems are getting bigger, and unlike the lip service some of those behemoths previously gave to the promise of reduced overhead from their combinations, they're making a serious commitment to efficiency these days by fully integrating their hospitals into an operating company structure as opposed to the holding company structures of the recent past.

They are also increasingly expanding their footprint to dominate many markets that previously may not have had a dominant provider of healthcare services. For small systems or standalone hospitals to survive the clout of their competition, they need a niche. Phelps and others are using a variety of approaches to selectively carve out that niche.